Facebook meets targets; shares slump

Social network sees sharp growth in mobile users; no forecast

By

DanGallagher

SAN FRANCISCO (MarketWatch) — Facebook Inc. managed to meet Wall Street’s expectations in its first earnings report as a public company on Thursday afternoon, but the lack of a forecast and higher spending appeared to spook investors anyway.

Reuters

Facebook CEO Mark Zuckerberg

Facebook
FB, -1.26%
shares fell more than 11% in after-hours trading, following the report and the company’s conference call with analysts. The drop put the stock at a new record low below the $24 mark; Facebook went public in mid-May at $38.

“I think it was a solid quarter, given where expectations were,” said Colin Sebastian of Robert W. Baird, who added, “not providing guidance may make investors nervous.”

Mark Mahaney of Citigroup called the results “a modest beat” based on his estimates for the quarter. “We don’t view these results as dramatically good or bad,” he wrote in a note to clients, adding that “key questions remain” about the company’s efforts to improve user engagement and generate revenues from the vast number of customers flocking to mobile devices.

The company said mobile monthly average users, or MAUs, jumped 67% to 543 million during the quarter — more than double the growth of its overall MAU base. The sharp growth in users accessing Facebook over mobile devices is challenging the company’s core advertising business, as it does not yet generate any significant revenues through mobile products.

“Mobile not only gives us the potential to connect more people with our services, but it also gives us the ability to provide more value and a more deeply engaging experience,” Zuckerberg said, adding that the company “is beginning to demonstrate that we can advertise effectively within the mobile experience” with its sponsored stories initiative.

Zuckerberg also discussed the company’s efforts to become a platform for other developers to build off of, as well as its initiative for more social ads.

“We believe the more our advertising includes interesting content from people you care about, the more marketers will be able to create advertising that adds value to people’s experience on Facebook,” he said.

Still, investor sentiment on Facebook has taken a toll on the company’s market value. The stock had already closed the regular session down 8.5% ahead of the report, as disappointing results the prior day from social-game maker Zynga
ZNGA, +0.40%
made some analysts worry about Facebook’s own revenue for the quarter. Read full story on Zynga's effect on Facebook.

Facebook tops revenue estimates

(2:05)

Facebook's second-quarter profit met analysts' estimates, while revenue growth came in a tad better than expectations. Barron's Michael Santoli discusses the results on The News Hub.

For the period ended June 30, Facebook reported a net loss of $157 million, or 8 cents a share, compared with net income of $240 million, or 11 cents a share, for the same period last year. Adjusted earnings for the recent period were $295 million, or 12 cents a share.

Revenue grew 32% to $1.18 billion.

Analysts were expecting adjusted earnings of 12 cents a share on revenue of $1.15 billion, according to consensus forecasts from FactSet.

Monthly average users, or MAUs, were 955 million at the end of the quarter, up 29% from the same period last year. Daily average users, or DAUs, rose 32% to 552 million.

Facebook did not give a forecast for the current period or year. On the call, chief financial officer David Ebersman said the company expects operating expenses to “increase significantly” in the rest of the year as it continues to hire “top talent.” Headcount jumped 50% from the same quarter last year.

“While we ultimately believe Facebook’s business model should support attractive operating margins, at this early stage of our growth, investment is a top priority, as opposed to managing for a target margin,” Ebersman said.

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